Making the move from WordPressMU 2.x to 3.x isn't all seamless. If after you upgrade all your uploaded images are broken download a broken image (because the webserver is actually serving an image, just your browser can't read it). Open this image in notepad and you should see something like:

If you followed the upgrade instructions exactly you deleted the file /wp-content/blogs.php. Well thats a problem, in WordPress 3.0 they decided to move the function of /wp-content/blogs.php to /wp-includes/ms-files.php. Now if you have broken images and you still have blogs.php--it's still a problem with your rewrite rules anyway because the old 2.x version of blogs.php isn't going to work now that you have upgraded everything else to 3.x.

To fix this we need to update your rewrite rules in the .htaccess file
Find the line:

1

RewriteRule^(.*/)?files/(.*)wp-content/blogs.php?file=$2[L]

And replace it with:

1

RewriteRule^(.*/)?files/(.*)wp-includes/ms-files.php?file=$2[L]

It's that simple, now to see it take effect you will need to clear your browser cache, use another browser, or force reload (Ctrl+F5 typically)